This chart signal could mean it’s time for the bears to pounce

Until the S&P 500 loses its momentum, traders shouldn't even think about taking bearish positions, according to MKM Partners chief market technician Jonathan Krinsky.

"One thing that's kept us constructively bullish since, really, the election is just looking at a simple trend measure such as the 20-day moving average," Krinsky said Monday on CNBC's "Trading Nation."

Krinsky points out that in the past four months, the S&P has not experienced consecutive closes below its own 20-day moving average, a technical indicator tracks the market's average closing price over the prior 20 sessions.

The technical analyst wrote in a recent note that the moving average has "acted as very strong support," and that "if you want to get bearish on the tape, we would at least wait for consecutive closes below the 20 DMA."

He added that consecutive closes below the moving average "would be your first sign that, at least on a short-term perspective, maybe the momentum is slowing."

In other words, Krinsky believes that if stocks slide a little, they could slide more. This is a common thesis among technical analysts, who tend to put a great deal of weight on trader psychology and market momentum, and thus frequently advocate drifting along with the crowd rather than going contrarian.

To be clear, two closes below the 20-day average would not turn Krinsky turning doomsday prognosticator: "It would take a lot more than that for us to get outright bearish, or think that we're entering anything more than a correction," he said.

Below the 20-day moving average, which currently sits at 2,364, Krinsky sees secondary support where the 50-day moving average hits, at about 2,313.

S&P Global equity chief investment officer Erin Gibbs agrees, though she generally uses earnings signals rather than the charts to make her macro market calls. "I wouldn't put on bearish trades on the S&P 500 until there is some sign of momentum weakness, or some indication of increasing fear or risk off in the markets," she said.

"It's hard to be very bearish when we're consistently seeing profit growth this year," Gibbs said Monday on "Trading Nation."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more